Tags: capitalism | supply and demand

To Restore Sustained Prosperity, Let Supply and Demand Set Prices

a chart showing supply and demand
(thanakorn hormniam/Dreamstime)

By Monday, 08 June 2020 11:36 AM Current | Bio | Archive

The "Tenth Commandment" of Capitalism prohibits imposing wage or price controls. The left demands Congress raise the statutory minimum wage to $15. It also has demanded imposing price controls over your internet service providers, cunningly calling this government price control "net neutrality." And so forth. This is well intended. That said, we know what road to where is paved with good intentions.

Ronald Reagan, promptly after being sworn in as president, decontrolled oil and gas prices. Conventional Republicans, expecting blame for a spike in gas prices at the pump, were apprehensive. Reagan was unfazed. No such spike occurred. In talking about what he was doing he genially alluded to a Roman emperor, Diocletian, who ruled almost 2,000 years ago. Diocletian catastrophically imposed price controls. Reagan, whose political enemies had tried to use his age against him, jovially said: "I am one of the few persons old enough to remember that."

One of the most fundamental laws of nature is that prices are determined by two things only: supply and demand. Yes, the government has the power to "set" prices. That's what the Soviet Union did. The result? Long waits for shabby goods. The Nixon/Carter price controls gave us gas lines. Surprise!

Yes. The government has the power to step in and punish people for selling something at a higher-than-officially-mandated price. When the government does that it makes people's lives worse. That repeated "Lucy and the Football" outcome doesn't stop officious officials who think they can repeal a law of nature. King Canute, lore has it, demonstrated the limitations of political power to rebut the flattery of his courtiers by commanding the incoming tide not to wet his feet and robes. He got soaked. Q.E.D.

But let's get one thing straight. A good capitalist, like me, is in favor of raising wages. The question is how one does that? By economic growth polices increasing demand for labor! If the government raises wages by diktat, ignoring the fact that if a job pays more than the value it adds to the world, the job soon disappears? Not good!

An unskilled job with mediocre pay is better than no job at all. This is especially true when it can lead to skill development and to a higher paid job as is common on the climb from unskilled to semi-skilled to skilled labor. Paul Ryan started off as a waiter on Capitol Hill. Being a shrewd dude he worked his way up to Speaker of the House and vice presidential nominee. If a too-high minimum wage had locked him out of that waiter's job he could not have gotten onto the first rung of that ladder.

Another example? "Net neutrality" was a cunning way of forbidding the companies who provide the (expensive) equipment that connects us to the internet to charge Netflix more for delivering thousands of times more content than it charges for delivering a measly email. Nothing "neutral" about that! Happily, the Trump FCC stopped this price control madness before it crippled internet access.

The more the government dictates prices the worse off we become. Politicos are always on the lookout to deliver goodies to their voters (and donors). Free goodies? What's not to love? Looting the economy can bring short term benefits but always causes long term destruction, that's what.

Mises, as conveyed to us via Ebeling at Fee.org, wrote of how Diocletian destroyed Rome:

"The marvelous civilization of antiquity perished because it did not adjust its moral code and its legal system to the requirements of the market economy. A social order is doomed if the actions which its normal functioning requires are rejected by the standards of morality, are declared illegal by the laws of the country, and are prosecuted as criminal by the courts and the police. The Roman Empire crumbled to dust because it lacked the spirit of [classical] liberalism and free enterprise. The policy of interventionism and its political corollary, the Fuhrer principle, decomposed the mighty empire as they will by necessity always disintegrate and destroy any social entity."

Yes, socialism can offer the minimum wage illusion. But capitalism is the path to creating real, higher, maximum, wages. The Nixon/Carter price controls on oil and gas created shortages, not ample affordable energy. The seductively framed "net neutrality" would have taken us back toward dial-up rather than letting us vault ahead to the power to download a movie in less than 10 seconds rather than 7 minutes. Rent control induces housing shortages. And so forth.

Respect the law of supply and demand. Hence the importance of the Tenth Commandment of Capitalism: "No government shall exercise control over wages or prices, including the pricing of telecommunication services, rent, or imposition of a minimum wage."

Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $88T. He served as a deputy general counsel in the Reagan White House, has worked closely with the Congress and two cabinet agencies, and has published over a million words on politics and policy in the mainstream media, as a distinguished professional blogger, and as the author of the internationally award-winning cult classic book "The Websters' Dictionary: How to Use the Web to Transform the World." He has served as senior adviser, economics, to APIA as an advocate of the gold standard, senior counselor to the Chamber of Digital Commerce and serves as general counsel to Frax.finance, a stablecoin venture. Read Ralph Benko's reports — More Here.

© 2020 Newsmax. All rights reserved.


   
1Like our page
2Share
RalphBenko
Yes, the government has the power to "set" prices. That's what the Soviet Union did. The result? Long waits for shabby goods.
capitalism, supply and demand
944
2020-36-08
Monday, 08 June 2020 11:36 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved